A creditor of the seller attached the apartment you bought: why the cautionary note is decisive

What happened in the case?

In 1990 a woman bought a quarter of an apartment from a family member who had fallen into debt. It was an inherited apartment. The same lawyer represented both parties. The transaction was reported to the tax authorities only three years later; no cautionary note was registered at all, and the rights were not transferred. In 1994 a creditor of the seller imposed an attachment on the quarter that was still registered in his name. The cautionary note was registered only after the attachment.

The buyer's attempt to have the attachment removed in the District Court failed, and she was ordered to pay costs. At the time, a long-standing rule known as the Bokar rule prevailed, under which a creditor who had attached the property took priority over a buyer who had not registered her right. The negligent lawyer who had handled the sale transaction also handled the claim, and it was he who advised against filing an appeal. The buyer's heirs sued the lawyer for negligence.

This is where matters became complicated. The lawyer issued a third-party notice against the insurance company with which he held professional liability insurance. The insurance company in turn issued a third-party notice (in effect, a fourth-party notice) against the seller, arguing that if the lawyer were found negligent and the insurer were then held liable to pay off the attachment, the seller would be unjustly enriched, having both received the purchase price and had his debts paid.

The author of this article represented the seller pro bono. The seller was in fact the only person among all those involved who had behaved properly and had not been negligent at all. His circumstances did not allow him to fund the proceedings.

The court held that the lawyer had been negligent and awarded against him the value of the quarter of the apartment, taking into account that it was subject to a lifelong right of residence, together with reimbursement of the costs of the earlier proceedings. At the end of the proceedings, the notice against our client was dismissed and the insurance company was even ordered to pay costs. The argument that the claim was premature and theoretical was accepted, since nothing had been paid when the claim was filed. That may not have been the most correct legal outcome, but justice was done here.

How has the case law changed since?

In 1999, in the Aharonov ruling (CA 189/95 Bank Otzar Ha-Hayal v. Aharonov), the Supreme Court held that the right of a buyer who has signed and paid can take priority over an attachment imposed after the transaction, even if no cautionary note was registered. In effect, the Bokar rule was overturned. The judgment in Haifa mentions this change, because had an appeal been filed against the dismissal of the claim to remove the attachment, that appeal would have succeeded, since the Aharonov ruling was handed down at the same time as the appeal. A twist of fate.

But the new rule does not make the cautionary note redundant. To prevail over the attachment you have to go to court, prove good faith, payment and dates, and bear the costs of the proceedings. A note registered on the day of signing prevents all this from the outset.

What does the case teach about dual representation?

There is not much to learn from this particular case, as it involved gross negligence in representation. As a general rule, however, when the same lawyer represents both buyer and seller, it is hard for that lawyer genuinely to look after the interests of each party. In this case the lawyer knew that the seller was in debt and still failed to register a note; moreover, the lawyer was acting for the buyer, and the seller was not separately represented at all.

What needs to be done on the day of signing?

• Obtain an up-to-date Land Registry extract and check for attachments, mortgages and notes.
• Sign an application to register a cautionary note together with the contract.
• File the application for registration immediately, rather than waiting for the next payment.
• Report the transaction to the Israel Tax Authority on time.
• Do not transfer money before the security is in place.

When should you consult a lawyer?

Before signing a contract to buy an apartment or a share in one, send us the extract and the draft contract. We will check that your rights are protected from day one.

To arrange a call: 052-5927592, or on WhatsApp using the button on the site.

About the author

Amos Ilan is an advocate (Israel Bar no. 35320) and a notary (licence no. 214444). The office is at 17 Tzahal Street, Ness Ziona, and handles real estate transactions, construction defects, condominium disputes and civil litigation.